Reverse discounted cash flow, or reverse DCF, starts with a share price and works backward to the annual cash-flow growth needed to match it. The result depends on the other assumptions you enter. It is a growth rate required by the model, not a prediction of what the company will achieve.
Try these example inputs in the Reverse DCF calculator.
These figures match this guide's worked example. They are illustrative. They stay on this device and never appear in the URL.
Key takeaways
The forward DCF model projects future cash flows, discounts them to today's value, and calculates a value per share. Reverse DCF repeats that calculation with different growth rates until the value matches the price you entered. Everything else stays fixed.
There is no single set of assumptions that a share price proves the market expects. Many combinations of growth, discount rates, and terminal growth can produce the same price. Reverse DCF finds the growth rate for the particular combination you choose.
This site's model values cash flow available to both lenders and shareholders, before interest payments. This is free cash flow to the firm, or FCFF, also called unlevered free cash flow. It uses a firm discount rate such as the weighted average cost of capital, or WACC: the combined cost of debt and equity financing.
Cash from operations minus capital spending can include interest payments. Check the cash-flow definition before treating that figure as FCFF. An equity cash-flow model uses a different cash-flow definition and a matching equity discount rate.
Projected cash flow in year t = starting cash flow × (1 + implied growth)^t
Terminal value = final projected cash flow × (1 + terminal growth) ÷ (discount rate − terminal growth)
Value per share = (present value of projected cash flows + present value of terminal value + net cash) ÷ shares
Net cash is cash minus debt. For $50 million of cash and $20 million of debt, enter 30 with Millions selected. If debt is larger by $30 million, enter −30. That negative amount reduces equity value. Read the enterprise-value explanation for the relationship between business value and share value.
Terminal growth is the annual cash-flow growth assumed indefinitely after the projection years. It must be below the discount rate. Cash flows arrive at each year-end; terminal value is discounted from the final projection year.
In the reverse DCF calculator, select units beside each amount. Shares are a count; cash flow and net cash are dollar amounts. Switching units preserves the underlying amount, so changing from full amounts to millions should not change the result.
Consider a hypothetical company with these inputs, using dollars and full share counts:
These assumptions imply approximately 5% annual cash-flow growth during the five projection years. The final year's cash flow is:
$100 × 1.05^5 = approximately $127.63
That is the business cash flow in year 5, before discounting. It is not the share price or an investor's return. After discounting the projected cash flows and terminal value, adding net cash, and dividing by 10 shares, the model gives approximately $163.19 per share.
About 73% of enterprise value in this example comes from the present value of terminal value, before the net-cash adjustment. Much of the answer therefore depends on what is assumed after year 5.
Ask whether the business could produce that cash-flow path under the assumptions you chose. Cash-flow growth can come from revenue, margins, spending, and working-capital changes; it need not equal sales growth.
Change one assumption at a time. A higher discount rate generally requires more growth to match the same price, while higher terminal growth generally requires less growth during the projection years. Select Calculate to update the result after editing inputs. The main chart and its Values table show the annual cash-flow path at the solved growth rate. Large dollar totals use millions or billions for readability. The sensitivity grid shows how the answer changes when the discount and terminal-growth rates change. Its optional scenario comparison keeps two sets of inputs separate.
The calculator searches annual growth rates from −50% to +100%. A price outside the values produced within that range has no displayed result. This is a search limit, not proof that no mathematical rate exists elsewhere.
Terminal growth at or above the discount rate makes this terminal-value formula unusable. Missing or invalid required inputs also leave the result blank. Starting cash flow and share count must be positive. A zero or negative cash-flow starting point needs a different model to describe a possible turnaround.
The calculation assumes one constant growth rate during the projection period, then a separate constant terminal rate. It holds shares and net cash fixed. It does not separately model future share issuance, changes in debt, or how much reinvestment would be needed to achieve the growth.
A low implied rate could reflect a business expected to shrink or face other difficulties. A high implied rate depends on the assumptions too. Neither result is a buy or sell signal.
For general education only. Nothing here is investment advice.
References explain the concepts; MarketCapLens supplies the examples and calculator assumptions. See who checks the numbers.